The Dividend Cafe

Today's Post - Economic Front Producer Prices were up +0.8% year-over-year in July (yes, less than 1%). Prices for intermediate processed goods are down -7.8% versus a year ago. The University of Michigan Consumer Confidence Index came in at 71.2 on the month, down a whisker from last month’s 71.6 but up a good deal from the June print of 64.4 I did get a fair amount of inquiry about the news that total U.S. Credit card debt had exceeded $1 trillion last week. That the total number goes up and down year by year is actually the new news, since from 1958 to 1990 it only went up every single year without exception. But people do not realize – throughout the pandemic $150 billion was paid off the balances of U.S. credit card holders (I am sure some of this was use of stimulus money, and some was re-financing mortgage debt at historically low rates). Income and assets have grown more than credit card debt for those who hold the bulk of U.S. credit card debt. And most importantly, debt service payments as a percentage of household income sits below 10% right now. it had been over 13% prior to the financial crisis. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3DPZwWA Four weeks ago, I devoted a Dividend Cafe to the subject of a “dividend growth mentality.” It was intended to, amongst other things, reiterate much of the underlying value proposition for investors in buying companies that return capital to shareholders via dividends and who increase those dividend payments year-over-year. The people who read Dividend Cafe are mostly investors, and all clients of our firm are investors. My interest in dividend growth is investor-centric – that is, how dividend growth accrues to the benefit of our clients. And yet, as became clear to me from a couple of letter-writers in the aftermath of that Dividend Cafe, there is a sense which it begs the question to ask why it is good for investors to receive dividends. Don’t we first need to understand why companies, themselves, pay dividends? Would the benefit to us as investors matter if there were no benefits to the companies? Or is this whole thinking sort of confused? Well, one thing I can promise you – you won’t be confused on any of this after you jump into this week’s Dividend Cafe, where we will seek to unpack this whole subject of companies paying dividends – why they do it, should they do it, and what does it all mean (economically and even philosophically). Let’s be honest, and this is about as fun as it gets. So join me in the Dividend Cafe. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/454dv7h A tad to my surprise CPI came in even lower than expected (+3.2% vs. consensus estimates of +3.3%). The core rate was +4.7% as anticipated. On the month, prices ex-food, ex-energy and ex-the B.S. shelter figure were down -0.1%. Within that +3.2% the shelter component was up +7.8%, as the model shows OER (owner’s equivalent rent) up +7.7% on the year and Rentals of primary residence up +8%. Uh huh. Core goods prices are up +0.8% on the year. +0.8%. The annualized total CPI from the last three months even with the bad shelter data is +1.9%. Shelter is overstating headline inflation by 30% and core inflation by 40% (and I actually think it is mor than that). Month-to-month data is moved by base effects of the year prior and energy prices. As for energy prices, it looks like much of the oil and gas surge was late July and not as captured in this month’s data as I would have expected. Two years ago this exact week the S&P was at 4,450 or so. Fast forward to today, the S&P is at 4,450 or so. But the 10-year yield was 1.32% and is now 4.02%. Would anyone guess that a near tripling of the bond yield would leave the market flat? Now, the Nasdaq is down -8.3% over the last two years, but still, you get the idea. Sometimes facts make no sense unless you have the gift of hindsight. Be careful about applying an investment conclusion to your forward-looking premises. As I always say, it will be hard enough for your premises to come true. It will be even harder for the conclusions that come from your premises to prove accurate. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3YukmEv I think the biggest news of the day was China’s -0.3% consumer price index for the month of July, and it’s -4.4% producer price index. This was the tenth month in a row of wholesale price deflation, but it was the first month in over two years of consumer price deflation. I am dedicating next week’s Dividend Cafe to the subject of Chinafication. In keeping with the message of the last two Dividend Cafes, our “credit watch” has a couple interesting things to note. Earnings were covering interest expense on investment grade loans 9.2x over right before the Fed began hiking rates. They are now covering them 8.2x. This is called the Interest Coverage Ratio and a high one is good (more coverage of the interest expense by the earnings of the company). Now, that number will get all the way down to 6x in recessions (2020, 2008, 2002), so this move down is not dramatic, but it is a deterioration that is worth watching. With High Yield it has moved from about 5x to just over 4x. Across the levered loan world total leverage is up a tad (debt divided by earnings), and coverage of the interest expense by either earnings or free cash flow is down a bit. None of these metrics yet indicate anything broken, yet all of them are modestly worse off than they were 12-18 months ago. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3OoSkpj From what I had initially thought would be a relatively quiet day in markets given the economic calendar, we ended up with a good amount of news to chew through in choppy markets with stocks selling off, a bid in bonds and volatility continuing its week-long climb. China reported softer than expected trade activity in exports and imports, reflecting its continued anemic recovery post-pandemic and further softness in its attempt to shift more towards a consumption-based economy. Following Fitch's downgrade on US debt last week, Moody's joined the downgrade party lowering the credit rating on ten small and mid-sized US banks today, issuing a negative outlook on over a dozen larger banks. Higher rates, an inverted yield curve, and concern in commercial real estate, not to mention the stress earlier in the year with SVB/FRB, all seem well-known at this point, so this felt a bit behind the curve. Stocks traded lower on the news down over 450 points by mid morning before regaining through the rest of the day closing down only modestly. All fully unpacked in the podcast video link below. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Yoorda Greetings from New York City (again). Lots of fun stuff today in my favorite DC Today of the week – the Monday edition (I love Mondays for so many reasons). Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3rVTWPV I hope that you found last week’s Dividend Cafe on Credit to be informative and interesting. It’s summertime, and some people are more focused on the beach and the sun than syndicated loans, but not me. The cool factor has never quite been something people associated with me, and if I have to enter the month of August with a double issue of Dividend Cafe on Credit markets, I am going to do it. But it isn’t just for the least cool of us like me – as I mentioned last week, Credit is a sine qua non in our economy. It is not an end for economic activity, but it is a vital part of the means. Oil and gasoline are not the points of driving, but good luck driving without them (okay, fine, or without electricity – the point is the same). The point of last week’s Dividend Cafe was that Credit is both a signifier or messenger about economic reality and, at the same time, a catalyst or influencer on economic activity. I wrote last week’s Dividend Cafe in sub-optimal conditions (I will leave it there) and knew as I was wrapping it up that there was more to say, so I committed to a second part. So consider today some “extra credit” (see what I did there) – and jump on into the Dividend Cafe! Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3QoFycQ Saudi put a further stake in the ground on extending production cuts, and oil jumped over +2.5% as a result (nearing $82 WTI). Again, they cite the silliness of SPR not making any moves to refill (something I spoke about on CNBC last night). Other than 2008 when the world was ending, 2022 and 2023 have seen the highest bond volatility since the 1980’s. This year has actually seen more days of > 10bp moves in two-year treasury yields than even last year did! The higher yield levels in the long end of the curve are the story of the week in financial markets, for sure, though. The 10-year is not back to the 4.35% high it saw last year but it is comfortably over 4% again. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3DGpZpC Fitch (the least known of the three major credit rating agencies) downgraded the U.S. from AAA to AA+, citing growing fiscal deterioration and overall debt burden. Now, you might be thinking, “oh no this sounds really bad,” and certainly anyone who doesn’t think the debt burden in the U.S. is really bad has, shall we say, not let the medication wear off … But on the other hand, not referring to the debt itself – just referring to Fitch saying all this, you also might be thinking, “ummmm, did you guys just return to the office yesterday?” All headlines and Johnny-come-latelies aside, treasury yields laughed off this announcement today. We should note, S&P moved the rating to AA+ twelve years ago. If one were looking to understand financial market responses to U.S. sovereign debt reality, they would be more focused on the ramifications for liquidity in the financial system (Fed actions with easing and tightening and levels of reserves in the banking system) than the ability to repay debt. The latter is simply not a concern. The former is a volatile, uncertain, and unstable tale that ebbs and flows and impacts all sorts of risk assets. The ADP jobs number once again blew out, this time at 324k private sector jobs created in July (versus 190k expected). We shall see what BLS says on Friday. More than 40% of companies in the Russell 2000 (small cap index) have NEGATIVE earnings. Small cap benefits from active management. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3q8RMfd August is off and running! The Dow was up +3.4% in July, nearly half of its total gain in 2023 coming in the month. Both the Nasdaq and S&P were up over +3% as well. Bonds sold off today as yields rallied, and with a weak manufacturing number today, the only reason I can see bond yields climbing today is some expectation (for right or for wrong) that the jobs data will be strong this week. Copper moving higher is not a sign of pending economic weakness, theoretically. Congrats to the U.S. women’s soccer team on their 0-0 tie with Portugal, which enabled them to advance in the World Cup. Yep. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3rQeA3P Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3QipwRU Everyone loves to talk about the stock market. When it is doing well, people assume everything is great (wrongly). When it is doing poorly, people assume everything is terrible (wrongly). Presidencies can rise or fall based on the Dow or the S&P 500. The stock market is at least familiar to most people, even if they don’t own stocks. It has cultural familiarity on top of investment democratization.The same is not always true of the bond market, which is interesting since the bond market is so much larger and more important than the stock market. Interest rates, liquidity, mortgages, the currency of a country, and the monies that fund wars, governments, tunnels, schools, and bridges are all a by-product of the bond market. However, the overall world of “borrowing” (debt to one party, credit to another) covers more than just bonds. The “credit” markets delve into the borrowings that exist to make possible homebuilding, homebuying, home re-financing, commercial real estate, small business loans, big business loans, and so much else. Securitizing the debt around car loans, credit card loans, and even aircraft and yacht loans is big business. Credit is not just a “boring” bond market – it is what makes the world turn into a highly robust and active economy. Capital is needed to fund capitalism, and that capital is, far more often than not, “credit” – not “equity” … Today in the Dividend Cafe, we look at the current state of credit markets and what they teach us about the current state of affairs. Few things are more clear throughout economic history than this: weakening credit markets reflect economic weakness, then create economic weakness. It is a vicious cycle as old as the wheel. And even the wheel probably had someone developing it on credit … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/4563eH1 As balanced as Jay Powell’s comments were yesterday in the presser following the latest and potentially last 25 bps rate hike of 2023, markets opened in rally mode taking comfort in his ‘data dependency’ rate path commitment over what could have been otherwise hawkish comments. We then got an entire slew of strong economic data around 830AM EST with durable goods orders, jobless claims, home sales, and most notably Q2 GDP coming in ahead of expectations that brought back the ole ‘good news is bad’ jitters into markets and we reversed course. Bonds sold off across the curve, but more longer than short and the yield curve steepened to -92 bps in 2/10’s. So, while stocks did put an end to a 13 day consecutive advance and the 10 YR is now flirting again with 4%, what we really saw was more support for the soft landing narrative and candidly, if this is what a recession looks like, I’ll take it. All discussed in more depth in the video podcast below, as well as a twofer in Ask David today as an added bonus. Enjoy and reach out with questions. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3rRaJTS The Dow was up for the 12th market day in a row, the longest streak since February of 2017 … (the ancient history of 6.5 years ago, back when I was much younger). Hong Kong and China stocks rallied hard (+4%) as Chinese leadership pledged more “support” for their property sector. What could go wrong? Some “worry” China will “succeed” in fighting their disinflation this way, and that it will leave a global economy too hot and make things harder for central banks. Some people, though, are idiots. WTI Crude oil broke through its 200-day moving average and is now a whisker from $80. I will be paying more attention to the threat of labor union strikes in the coming days and weeks. One strike here and one strike there (particularly in something as niche as Hollywood writers) doesn’t grab me from a purely macroeconomic sense. But four new strikes and a couple big ones (like, you know, the UAW), and I do wonder what kind of impact it may have on select companies and sectors. Off we go … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3O7FRWJ I am back in New York City after a few days working from my house in East Hampton and ready for a hot and humid week in the concrete jungle. Office needs and speaking engagements didn’t allow me too much time at our Hamptons home this summer but I do enjoy being here in the city even in my least favorite time of the year weather-wise (I will take the snow storm winters over the oppressive heat any day!). To see New York this crowded and normal after what I observed in the depths of COVID is a true blessing (I was here throughout summer of 2020 when it was a real ghost town). It will be a busy and lively week in our Manhattan office and I am excited. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3NZaBt7 Bring up the issue of “off-shoring” American manufacturing and you will get a wide variety of responses, many of them highly emotional. Today’s vernacular talks about “onshoring” or “re-shoring” or “near-shoring” – various synonyms or adjacent concepts to the idea of reversing certain trends of globalization, primarily the ones dealing with American activities in manufacturing and the supply chain. As is the case with almost every topic I could ever address these days, the subject is complex, requires nuance, and doesn’t come close to one of the two simplistic boxes we are supposed to fit all of our thinking and analysis into. My interest in this Dividend Cafe is less political and more economic. It is less about making a statement and more about doing some analysis. It is less about finding a campaign message and more about finding an investment thesis. So to those ends, we work. Let’s talk about expectations for America’s supply chain management in the years ahead. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/44yThlA It’s hard for contrarians to like some of the sentiment out there, with “bulls” at their highest level since April of 2021 and bears at their lowest level since June of 2021. The greed/fear index is tilted way towards the “greed” side of things and while it feels good to some, we like it the other way. Earnings season has started off well across the market, broadly speaking, but Tesla and Netflix were the first two mega-cap “name brand” companies to buck that trend this season, getting hit hard today (though still way, way up on the year). Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/4796XFZ David Bahnsen is traveling today and I, Trevor Cummings, will be filling in to provide you with the daily happenings around markets on this beautiful summer day. The market hit a 52-week high, the Dow is on its longest win streak (8 consecutive days) since September 2019, headlines were captivated by a slew of corporate earnings reports, we have new housing starts data, and of course the best part – Ask David. Please join us for all of this and much more. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3DhRwgD After crickets last night in futures, we opened up nicely on the day right out of the gate and continued to trade higher in both stocks and bonds throughout the entire session closing just off the highs. For all those waiting for the data or news indicating some recession shoe to drop we just aren’t seeing it and flows are quietly but steadily moving more towards risk assets with short positions covering. Its still early innings in earnings season with only about 9% of companies reporting so far, but with the majority of the largest banks out and beating expectations, a common theme: resiliency in the US consumer offsetting the negative affect of yield curve inversion on net interest margins. Also of note, high yield bond spreads are at the lowest level in over a year at 380 wide, a full 100bps lower than they were at the start of the last recession in comparison. So there you have it, markets remain resilient, and are now up 27% from the October lows, and we continue to climb this wall of worry in another heavily doubted equity bull market. Check out the podcast video today for more color on my resiliency theme and more. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Q15Bql Economic Front One of the economists I read every day who has been screaming non-stop for 18 months now that we are entering a recession sent a “reminder” email this morning that we are “still likely” to enter a recession. And maybe we are. First of all, broken clocks and all that stuff. But secondly, I think the question about if and when we enter a recession now misses the point. Short term, these people obviously don’t know. Additionally, no one knows what it would mean to markets if we did. No one. But longer term, we don’t need to know if there is a Q4 2023 or a Q1 2024 recession to know that we do face significant excessive indebtedness that matters for the next 10, 20, 30 years. I remain mystified by why these chicken littles can’t focus on a long term reality we do know versus a short term reality we do not. Consumer confidence jumped to 72.6 from 64.4 last month in the latest University of Michigan Consumer Confidence survey. This is the highest since September of 2021. Current conditions and expectations were both higher. Two quick caveats: (a) I have always found consumer confidence to be worthless; (2) Pre-COVID it was at 101, so putting the index in perspective, it is ahead of expectations, ahead of recent prints, and yet well below prior level. China’s Q2 GDP growth missed expectations, coming in at +6.3% year-over-year but slowing to just 0.8% from Q1’s growth rate (which had been +2.2%(, which was a surprise. Retail sales are not huge, capex is muted (as their property sector stumbles), and youth unemployment is over 21%. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3JYQSbA I am writing this week’s Dividend Cafe from Reagan International Airport in Washington DC. I recorded the video and podcast from my hotel room last night. I am soon departing for Memphis, TN where I am speaking at a conference Friday and Saturday before returning to New York. I was in DC to speak to a very large group of college students at George Mason University on free market economics. I had taken the train in to DC yesterday from New York after my flight to DC on Wednesday got cancelled just minutes after speaking to a symposium in south Orange County on the ESG investing movement (you can guess what perspective I brought to the subject). I made it to that conference after having a flight from New York Monday sit on the tarmac for four hours waiting for fuel. So from New York to California back to New York to Washington DC to Memphis then back to New York again, all in six days. It’s been a week. In the meantime, I scrapped plans for a Dividend Cafe on plans for the American supply chain and what those changes may mean for the American economy, and instead have elected to do a refresher on dividend growth. I plan to do a “dividend growth” focused Dividend Cafe once a quarter, and this seemed like a pretty good day to do it. Not to brag or anything, but I can write a Dividend Cafe about dividend growth quite intuitively (which I guess bragging about that would be like bragging about one’s speech and debate achievements in high school to the football team, which I will just anecdotally mention is not as cool a thing to do as it may sound). Dividend growth is, after all, the very end to which we work. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Ddn2fV Earnings season is officially underway (companies like Delta and Pepsi released today, and a slew of big banks release tomorrow). The annual inflation rate came in yesterday at the lowest level in more than two years. The dollar is at its lowest level (against a global basket of different currencies since April of last year. Senator Warren is officially now yelling for Chairman Powell and the Fed to stop hiking interest rates (I have been waiting for a populist backlash; I just didn’t know if it would be from the right or the left first; now we know). China exports fell -12.4% last month (year-over-year), with 11 months in a row of declining exports to the U.S. Hmmmmm … Jobless claims came in at 237,000, heading south from the averages north of 250k we had been seeing! Producer Prices are up +0.1% year-over-year. +0.1%. Zero percent inflation in wholesale prices. Now, let’s be real honest about something here. This is mostly a story of what we call “trading base effects.” Last year at this time, the YOY PPI was +11%, so that number was so silly that a year later, being up +0% is less profound than it may seem. But of course, the same was true before (only on the other side of the math), where a high YOY number was a by-product of the prior year’s price collapse. And we are supposed to do calculations off of these distortions? But there is genuine price deflation in the producer prices (year-over-year) of processed and unprocessed core goods. Commodity prices are down. Supply chains have normalized. Wholesale prices have moderated entirely and are very likely heading lower based on manufacturing data. TIP spreads are showing implied inflation expectations of 1.95% for the next two years. Over five years, 2.19%. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Although closing off the highs, stocks and bonds rallied today on cooler-than-expected CPI data, with the headline now at 3.0% year over year. With a 90% chance in fed funds futures still pointing to a 25bps rate increase in two weeks, it was as interesting to see the expectations for a rate cut pull forward from May of next year to March. Today's Post - https://bahnsen.co/43hXzMY Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/46Mbde0 Markets today rallied even with all eyes on tomorrow’s CPI number. Three Fed governors have doubled down on the need for more rate hikes in the last 24 hours. China is releasing a wide array of policy support measures to support its floundering property market and construction industry. Warren Buffett/Berkshire Hathaway has taken a 75% interest in one of the country’s major LNG export facilities (liquefied natural gas). For those keeping track, we only have seven operational facilities in the country that can currently export LNG. There is a longer-than-normal answer in Ask David today because the question was a very thoughtful one. Check it out below! Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3NJ2dO3 I hope you all had a wonderful Fourth of July holiday. I love Independence Day, and I love celebrating America’s independence. I love the Declaration of Independence (and I should add, it has quite a bit of economic messaging in it). And of course, having the time to celebrate summer, family, friends, and all the traditions and customs that go with the Fourth of July is time well-spent. I devote this week’s Dividend Cafe to your questions for us – the top inquiries, questions, and inquiries that have hit our inbox over the last week or so. The topics cover the whole gamut this week and I think you will find it fruitful and edifying. So jump on in to the Dividend Cafe, and let’s answer your questions! Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3NJs88A One of my least favorite things I see analysts do on Wall Street is take various historical incidents and attempt to extract likely future market behavior from it. “7 out of the last 9 times a team from California won the World Series, the market was up over the next 120 days” (or something like that – I made that one up to make a point; actually, that example there would be significantly more logical than some of the nonsense I routinely see). This morning I read a report that said “nine of the last nine times the real Fed Funds rate was rising, the S&P 500 was up.” Okay, fair enough. Not super helpful predictively, though, since one only knows what the period of time the real Fed Funds rate is rising in hindsight (from a start to an end), and periods within it can be quite negative (see: 2022). But then this report went on to say: “in the 12 months following a period of a rising fed funds rate the market was up double digits four of the nine times and down in the remaining five.” Crystal clear. Now who won the World Series last year? The ADP jobs number came out showing explosive June private sector job creation (+497k, double expectations). Leisure and Hospitality was nearly half of that, so it does seem a bit lumpy. Of course, we also know weekly initial jobless claims have been rising, so there is a bit of a mixed bag in the labor data with the skew still being to the positive side. We shall see what the BLS report generates for June tomorrow. Bond yields went up and stock futures went down after the ADP report. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post -https://bahnsen.co/3ricXf2 I am hopeful all had a wonderful Independence Day spent with family and friends in celebration of the 247th year of the greatest country to ever inhabit the Earth. The biggest news on the day was the Fed minutes that were released, indicating the rationale behind their decision to pause and hold rates steady last meeting while leaving the door open to raising again in the near future. While the decision was unanimous, the discussion revealed a debate by some on moving rates up 25 bps last week. The next FOMC meeting is out on 7/25 and 7/26, and while we do get some employment data this week, I think it will be less relevant than the consumer price data we will get a week from today that will ultimately drive their next decision on rates. It does appear the Fed is erring on the risk of recession over the risk of having to repeat the 1970s style stop and go on Fed policy. All said, it was a low-volume trading day following the holiday and the first full trading day in the second half of the year that was modestly negative in stock and bond prices throughout. All discussed and more in today's video podcast link below. Brian Szytel Source: https://www.usatoday.com/story/money/2023/07/05/ups-teamsters-negotiations-end-as-strike-looms/70382580007/ Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3JFT7AK By the time you are reading this, the first half of 2023 will be complete. I can't put exact market figures here because I am writing this middle of the market day, Thursday the 29th, so the precise finality is a day and a half away. But the general themes that made the first half of 2023 what it was are quite clear, and I think you will find this "2023 halftime report" Dividend Cafe to be quite provocative. And what else do you hope you find in the Dividend Cafe if not "provocative" ... So let's jump into the Dividend Cafe and see what 2023 has delivered thus far and what might be on the horizon for the second half! Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3prCOAq An upward revision in Q1 GDP fueled by stronger consumer spending and exports, jobless claims figures that came in better than expected, and a passing grade for all US banks in Fed stress test results were what fueled today’s market rally and run-up in short-term rates. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3XrRlJ6 At the ECB Forum in Sintra Portugal – Powell, Lagarde, and Baily all had hawkish comments on inflation and tighter central bank policy needed to contain it. However, all three felt that could be done without inevitably causing a recession. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3pr9HgK So another day gone by and I don’t think the world knows much more than it has 24 hours ago about Putin and the weekend coup threat. Natural gas prices have jumped from $2 to $2.80 BTU in just 15 days or so (+40%) and not surprisingly energy stocks with a natural gas focus have done much better than those exclusively focused on crude oil. One of the energy bear arguments seems to have really dissipated, and that was the idea that exposure to higher rates would be catastrophic for the highly levered energy sector (in 2020 it was often said that the debt cliffs these companies have would usher in a wave of bankruptcies). A new survey from the Dallas Fed of 150 oil and gas companies indicated that less than 20% see tighter credit conditions having a significant impact on their business. New home sales were up +12.2% in May (volume) with supply down to 6.7 months (had been 7.6 months). My study is starting to indicate a worthlessness to national supply data when some markets are so substantially under-supplied and some suffering from big over-supply (making the aggregate number like the guy whose “average temperature” is found with one arm in the freezer and one in the oven). But what I would point out is that median sales prices have dropped -16.2% (for new homes) since their peak, right in the middle spot of that 10-20% drop I predicted (though this is just new homes, not existing, yet). Seattle and San Francisco, by the way, have seen double-digit median price drops of existing homes. Hmmmmm Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3NMJ3bk Top News Stories Friday night the absolutely fascinating news hit that a coup d’etat was underway in Russia, or at least an attempted one, with mercenary chief, Yevgeny Prigozhin, leading troops out of Ukraine and into a city south of Moscow with significant military headquarters for Russia. Putin, of course, called the act a treasonous betrayal and vowed revenge. As the day went on Saturday it was announced that a truce had been reached and Prigozhin had called off the march on Moscow, and would be allowed to peacefully enter Belarus. But then over the next 24 hours more and more news and analysis came that seemed to indicate that, ummmm, maybe that wasn’t going to prove an entirely safe exit plan for Prigozhin. The entire question comes down to whether or not this indicates the beginning of the end of the Ukraine war, and it is too early to tell. If nothing else, it still indicates a vulnerability for Putin, especially if reports are true that other Russian generals and oligarchs were actually favorable (quietly or out loud) to what Prigozhin was doing. I wouldn’t read too much into kneejerk responses from anyone, but it all does seem reasonable enough to say that (a) Putin’s position seems weaker than at any time since he took power, and (b) An internal Russian move may be a more likely end to Putin and the aggression against Ukraine than anything else we have seen so far. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3CKX1o6 I gave a speech this week at a large economic symposium where I am blessed to lecture every summer. My talk tackled many of the themes I write about all the time in the Dividend Cafe – the impact of excessive indebtedness on macroeconomic conditions, the comparison of pre-GFC Japan with post-GFC America, the diminishing return of fiscal and monetary policy to impact the business cycle, etc. This week’s Dividend Cafe takes all these themes and lessons of so many Dividend Cafe bulletins and puts them together the way I presented them at my speech this week. And most of all, I have tried to incorporate some suggestions of what could change it all – not what will change it all, but what could. So jump on into the Dividend Cafe. From Grand Rapids, Michigan, to the Big Apple, Japanification is real. And the impact of debt on growth is the most misunderstood or ignored economic Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3NqpaFA The Bank of England surprised markets by hiking rates a half point this morning (a quarter point had been expected). Chairman Powell did his very best in front of the House yesterday to basically swear they have more rate hikes left in them (all the while swearing they are data dependent, with the apparent contradiction between promising something six weeks in advance of the data coming in that you are promising to be led by never really being explained). But then … Atlanta Fed President, Raphael Bostic, came out and said he believes the Fed should hold rates where they are now for the rest of the year … So if you don’t know what the Fed will do next, join the club. The futures market is up to a 77% implied probability that the Fed will hike at the late July meeting. I remain skeptical but not adamant. And the Fed remains content with ambiguity and public mixed messaging, with “trial ballooning” apparently a new policy tool in the toolbox. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3JpMzpy Brian Szytel here with you today, kicking off the first day of Summer with just what I know you all used to look forward to as kids – discussion on the days market action, Fed comments, and inflation. Not to worry, I won’t let you hit your Summer vacations uniformed with all thoroughly discussed in today’s podcast and video. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3JpIamG Greetings from Grand Rapids, Michigan where I spoke at a large economics symposium today, and where I will be for the next couple of days before returning to NYC on Friday. As is my intention on most weeks with a Monday market holiday, this Tuesday DC Today is basically being done with the old school “Monday style.” Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/4301I8h We have had a lot to say about housing here in the Dividend Cafe over the years, most recently here with a broad update of projections for supply, demand, and pricing, and more philosophically, last year’s bulletin here that aimed to provide a bigger picture perspective on how to think about it all. I was and am proud of both issues of the Dividend Cafe and the message embedded therein. Housing is a big part of the U.S. economy, where we live is a big part of our lives, and what it costs us is a big part of our monthly pocketbook. Yet today’s Dividend Cafe is a little different. Not only am I not offering a forecast today as to whether or not median home prices will drop -9% from here or go up +5% or some other irrelevant nonsense, I also am not speaking to some macroeconomic ramifications of housing the way many pundits do (this many construction jobs will be added or lost, or this increase or decrease will take place in spending at the Home Depots and Lowes of our economy, blah blah blah). I do happen to think most of those discussion items are silly, misguided, and misunderstood, but that is not why I am ignoring them today. Besides them being bad questions, and impossible to answer, I also have a different focus that is more important to our lives and well-being. Today I want to dig into the single biggest reality of housing that no one seems interested in talking about – and that is the cultural implications of how we have re-framed our view of residential real estate over the years. Some may prefer a discussion to the latest projections around the rocket science that is “home flipping,” but I believe our angle today is the lowest hanging fruit of how we ought to think about this subject. Let’s jump into the Dividend Cafe … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/42KWXyW Markets rallied some more today as bond yields dropped further even though the curve inverted more (as long-dated yields dropped more than short-dated). The odds for a hike at the next meeting (which is six weeks away, I should point out) moved to 67% for a 25-basis point hike and 33% for no move again. Odds are evenly split that by the end of the year we will either be at the current level or lower, versus a further hike. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/467JeWa Brian Szytel here with you on today’s highly anticipated Fed Day. After 10 back-to-back rate increases from the Fed over the past year and a half where they raised short-term rates from 0% to just over 5% the Fed today paused (not necessarily ended) their rate tightening campaign with a ‘wait and see’ message on how their policy changes which operate with a lag will further affect the economy before their next meeting in July. The hawkish language in the statement and in the press conference afterward however left the door wide open for further rate increases should the data warrant. Main takeaways here: The median forecast for terminal Fed funds in the Fed dot plots was raised to 5.6% by the end of this year, 4.6% by the end of 2024, and 3.2% by the end of 2025. Only two committee members saw the current rate as appropriate, with all remaining 16 members supporting further 25 bps rate increases before the end of the year, nine of which saw two more 25 bps hikes. GDP estimate was revised UP to 1% from .4%. The unemployment estimate was revised DOWN to 4.1% from 4.5%. At the end of the day, 1. actions speak louder than words and I think they want to be done and 2. the economic outlook on growth and employment was upgraded not downgraded. Markets had been slightly positive most of the trading day (other than the DOW that was dragged down by just one price-weighted stock), then initially sold off over 400 points following the statement with yields rising, only then to normalize into the close. Wash, rinse, and repeat on almost every Fed day. I unpack all the nuance and what to make of it all in markets in greater detail in the video podcast link below. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3N5Vy0n So the month of May CPI report came out this morning, and xxxxxxx Those who continue to be “frustrated” by the reasonable resilience of the economy in the face of the Fed’s desire to break it are up against a few different things. (1) The utter weirdness of believing an economy must be broken to beat inflation. It is not true, and it has never been true. (2) The extent to which many corporate borrowers (both high yield and investment grade) extended the maturities of their borrowings during the COVID zero-interest rate period. This means companies are not impacted by higher rates where they don’t have loans resetting at higher rates. Of course, this is not true for all but it has been true for many. (3) How incredibly unnecessary it is to use high rates to defeat inflation when monetary policy was not the primary cause of the inflation to begin with. The issues that primarily caused the inflation of 2021/22 were rectified in the natural course of events (supply chain, labor shortage, reopening, etc.) and no the cause and effect mechanisms are all off in the way the Fed is approaching this. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3N1hlWQ Futures opened flat last night and stayed flat throughout the night up until my early morning wake-up. They inched higher in the hours before the opening. The market opened up over +100 points and stayed up through most of the day, closing near a high The Dow closed up +190 points (+0.56%) with the S&P 500 up +0.94% and the Nasdaq +1.53%. There are now less than 3,000 companies active and trading in U.S. public markets, versus almost 10,000 that are backed by private equity, and nearly 40,000 backed by venture capital. There are 32 million small/mid/family businesses. Naturally, the 3,000 public companies are what the media focuses on as a bellwether of the U.S. economy. A great call we made in 2020 was a huge boom of M&A that would come out of the low-rate and post-COVID moment. Low rates were an economic argument; the post-COVID observation was sociological (many deals got done or accelerated behind newfound catalysts). That pushed up the values of investment banks, private equity shops, private lenders, and others in the advice chain of this financial ecosystem. Massive M&A peaked 18 months ago, re-pricings have taken place, and in the ebb and flow of the M&A world we would not be surprised to see a new era of financial activity take place on the other side of this. The ten-year bond yield closed today at 3.73%, down one basis point on the day Top-performing sector for the day: Technology (+2.07%) Bottom-performing sector for the day: Energy (-0.97%) Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/42yYfgC This was a big week in the Bahnsen household, but really for many families all over the country. Joleen and I celebrated the graduation from high school of our firstborn son, Mitchell. Many of you likely had kids, grandkids, and loved ones celebrate some graduation as well (college or high school). They are all special and memorable, and if you suffer from the same chronic nostalgia syndrome that I do, maybe these events bring back memories of your own graduation. I believe some of the emotion this week was not just in seeing our own firstborn celebrate this milestone but also in the gratitude I have for the high school he attended, a passion project of mine for the last ten years. A lot more has gone into this week than meets the eye, and I feel truly blessed. Today so many young people enter adulthood with a sense of pessimism, gloom, and uncertainty. There is often widespread financial ignorance as to “how to be,” and there is almost always an underlying negativity about the economic trajectory of our communities, or country, or even the world. The positive of high school graduation can be met with the daunting challenges of adult life in the category of finance, vocation, and economics. I want to devote this week’s Dividend Cafe to that young man or woman leaving high school or college, ready to start adult life. I imagine there will be some takeaways that seem relevant to all readers. But my special focus is on those entering adult life looking for some broad, practical takeaways about finance and economics. Our entry into adulthood is hard enough as it is – there is no reason to make it harder with a stunted worldview on such an important part of human life. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3WZi5jG It has not been a great week for global bonds with extra rate hikes as of late in Canada and Australia as of late and a re-pricing of Fed expectations here in the U.S. has kept bond yields on the short end of the curve higher, and even flattened the curve a tad with longer-dated yields coming up. We are still sitting at just a 74% chance of a pause in Fed action next week (in the futures market), meaning there is a 26% chance of another quarter-point hike. But there is a 64% chance of a rate hike in July … In the meantime, jobless claims flew up to 261,000 this week from just 233,000 last week, a large and unexpected move that we will need until next week to see if it is just noise this week or the start of something more substantial. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Joqzf1 Big rally in Energy and Real Estate today even as other markets stalled and reversed. The media world went into a trance this morning before the market opened on the news that CNN’s CEO, Chris Licht, had been fired. Though not much of a market story, it distracted everyone for the day and allowed it to be a mostly boring day in the world of financial media. As expected, Mike Pence, Chris Christie, and Doug Burgum (billionaire Governor of North Dakota) have all entered the Presidential race this week, vying for the Republican nomination. Add them to the list that includes Donald Trump and Ron DeSantis as top candidates and then Nikki Haley and Tim Scott, and you have basically 7-10 total candidates, two of which poll high, three of which poll a little, and the rest of which poll basically not at all. It’s going to be a wild summer. And I am sure at some point, I will have to talk about it more in terms of policy and market implications, but we are nowhere near that point yet. For now, my forecasts are rather simple: I am dubious that Joe Biden will end up being the Democrat nominee; I am highly dubious that former President Trump can win a general election; and I believe there is a candidate or two who could beat President Trump for the Republican nomination, but am as unsure as anyone else as to whether or not that will happen. There are so many wildcards out there right now; predictions are a fool’s errand. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3X7RBwR A flattish day in markets but a big rally in Financials … The SEC is suing Coinbase, the major publicly traded exchange for cryptocurrency, for violating securities laws and defying regulatory requirements. This company is down -80% in value from its high, and now there exists an investigation or active charges with every major crypto exchange firm. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3qnOZyl Ask David “With regards to the debt ceiling compromise, you point out that it suspends the debt ceiling entirely through the end of 2024. What I do not exactly understand is if the spending growth has been capped, then why would an increase in the debt ceiling be needed at all? ~ Mark The part you’re missing is revenue. We can reasonably know what expenses will be now, and they will be reasonably limited. So yes, that should take the need for much borrowing above a given ceiling off the table. But revenue is a big variable, and especially in a deeper recession, it can drop well below the expenditure line, enhancing the need for deficit borrowing. The variability of revenue is massive. Think of a 1% drop in the total GDP of the economy. Then think of an average drop of revenue as a % of GDP of 2-4% per recession. So $24 trillion GDP goes to $23.75 trillion, and then the tax receipts go from 19% of 24tn to 16% of 23.75tn – essentially, lost revenues of roughly $750 billion. That could add 50-75% to the deficit and would be funded with debt issuance. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3qmaIH8 For a long time there was only one country on earth dealing with a bubble that had burst, spending way more than it was bringing in, seeing revenues decrease, juggling banks that weren’t actually solvent, and running extreme monetary policy to try and keep all the holes in the dam from bursting. That country was Japan in the 1990’s and into the next decade. For over 30 years now they have favored radical fiscal and monetary policy as a means of dealing with their economic woes, and the result has been well-documented in these pages of Dividend Cafe. The balanced budgets and high real GDP growth rates of the American economy in the 1990’s went away when our own credit bubble burst in 2008. Asset prices fell, deficits exploded, and the Fed played pharmacist to it all, providing ample medicine to make it all feel better as we muddled through. Japan now has ample company to the fundamental shared sickness of “excessive indebtedness.” Across the developed world those Japan-like characteristics of high debt, muted growth, and monetary discretion are now par for the course (see: America, Europe). Today we’re going to look at a few things with Japan and see if we can’t learn a little about the future state of the American economy and policy. It is one thing to refuse to learn from the past. It is another thing all together to not even learn from the present. Let’s jump in to the Dividend Cafe … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3C3vY77 As expected, the House passed the McCarthy-Biden debt ceiling bill, and the Senate will do their part by this weekend. The bill passed by a vote of 314-117, quite the nail-biter, with 165 Democrats voting yes and 149 Republicans voting yes. This allows us to now change our focus to the next end-of-the-world moment. Do not fear – it will not take long – a new culprit for the cause of Armageddon will arrive shortly. And the media will be ready to tell you what it is. Futures are now at a 78% chance of a Fed Rate pause at the June 14 meeting (it was less than 40% just two days ago). Several Fed officials have come out jawboning the idea of a pause. I think there is almost a 0% chance that these Fed officials making public comments to this effect do not mirror the view of Chairman Powell himself. The world’s largest chipmaker most connected to Artificial Intelligence is trading at a mere 197x earnings now, which is just the bargain basement level of 23x gross sales. It is sort of surreal to see this kind of excess and froth just a year after all these other shiny objects got taken to the woodshed. Human nature is immutable. C3.ai, a leading artificial intelligence software firm, is down -30% in the last 24 hours as numbers came in vastly below expectations. I bring this up because they are all over the news since, well, they lose $260 million per year on gross sales of $266 million per year. That negative -98% margin being attached to a $6 billion market cap is, shall we say, a sign of the times. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - The debt ceiling bill has gotten through the House Rules Committee and it appears nearly certain that the House will have the votes tonight for passage. What happened here proved to be even less dramatic than I predicted, and I was predicting that the media posture here was recklessly and shamefully melodramatic. I promise you this, though – no one will learn anything, and everyone will take the bait again next time, too. Media reports that some hardliners on the right were going to look to oust Speaker McCarthy over this bill were, well, totally untrue. One of the big themes in the market right now is the relative weakness of defensive sectors like Consumer Staples, Health Care, and Utilities. And for a contrarian like me, it makes me like them even more. The momentum is in one very narrow space right now. That boat has a capsize risk in front of it as 2023 progresses. In the meantime, 4% of the large cap universe is at a relative high right now, while 25% is at a relative low. Weird wacky stuff. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3qlozNA “I agree with you overall concerning shareholder vs. stakeholder priorities in a company’s motivations. It did occur to me, however, that often the bad behavior examples provided by the advocates of the stakeholder paradigm don’t really involve a company acting in the best interests of shareholders, but rather having a near-sighted, excessively short-term focus on quick returns at the expense of sustained gains. My question is how in a dividend-growth framework you and your team balance the near- and far-term in a company’s approach in such a way as to genuinely promote the interests of the shareholder.” ~ Jeff M. But of course here is the exact point – no system of investing I have encountered seems to directly and specifically focus on long-term decision making vs. short-term noise more than dividend growth! If the entire focus is on long-term sustainability of growing cash flow, various quarterly efforts at “quick returns at the expense of sustained gains” can’t possibly be tolerated. They are disqualifiers. Now, how much companies really do that is another story, but the point is the qualitative and quantitative criteria for stellar dividend growth companies are the very things that call for long term prudent actions versus short term myopia. I cannot say this enough: Dividend growth over time is both the signifier and the consequence of a well-run business. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com